Public Bill Committee

[Mr. Eric Illsley in the Chair]

(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration)

Clause 73 ordered to stand part of the Bill.

Clause 74

SDLT: alternative finance arrangements

Question proposed, That the clause stand part of the Bill.

Stephen Timms: I warmly welcome you back to the Chair, Mr. Illsley.
The clause is part of a package of measures to help Islamic finance. We have been working with the industry to remove the barriers to Islamic finance products and have made a good deal of progress. The clause provides a new tax framework for sukuk, which allows sukuk to be issued, held and traded as conventional securities. Sukuk is a sharia-compliant form of securitisation. As members of the Committee will know, in a conventional securitisation, investors purchase bonds and receive interest on their investment, backed by an asset such as a mortgage book as security. In sukuk, however, investors purchase a share of the underlying asset, and their return is in the form of a proportionate share of the income from the asset, so in a sukuk backed by a sharia-compliant mortgage book, investors receive a share of the payments made by the property owners. Sukuk can be backed by any income-producing asset, but clause 74 concerns only sukuk backed by a sharia-compliant mortgage book.
In the case of stamp duty land tax, we recognise that taking and receiving interest is prohibited by sharia law. That has led to the growth of alternative financing mechanisms. Our current taxation system—or the system as it was before we started to change it—has occasionally inadvertently hampered those new mechanisms. Islamic financing of home purchases has grown by 40 per cent. in the past year alone, so we are opening up important new commercial opportunities.
The UK is the only country in the European Union that currently offers Islamic mortgages. Sultan Choudhury, director of sales at the Islamic bank of Britain—whose East Ham branch I was pleased to open last year—said that this Government’s initiatives have been
“key to the UK’s success in expanding the market faster than anywhere else”
in Europe. Neil Miller, a partner at Norton Rose, has mentioned that
“the UK is now more efficient on a tax basis for Islamic finance than many Muslim states”.
I am grateful that the series of changes that we have made has been welcomed on both sides of the House. I am sure that this clause will equally be welcome to all members of the Committee.

Question put and agreed to.

Clause 74 ordered to stand part of the Bill.

Clauses 75 to 77 ordered to stand part of the Bill.

Clause 78

Certain transfers of school land

Question proposed, That the clause stand part of the Bill.

Philip Dunne: I would like the Minister to clarify the intent of the repeal. The explanatory notes suggest that the reliefs from stamp duty land tax available for the sale of school land are to be repealed, which I assume means that they are to be abolished. Does that mean that schools seeking to sell or transfer part of their property to other public sector bodies will have pay tax, where previously they would not have had to, which will add to the costs of the public sector body? That seems to be a perverse consequence. If, alternatively, the provision is designed to raise revenue and, therefore, to discourage the sale to developers of school land such as playing fields, I welcome it, but it is not clear from the explanatory notes.

Stephen Timms: The key point is that stamp duty land tax legislation includes a general relief for transfers between public bodies in connection with a statutory reorganisation, which means that, in most cases, it is no longer necessary to write stamp duty tax reliefs into legislation that includes provision for transferring land between such bodies. To clarify, the clause repeals the existing stamp duty land tax reliefs applying to, as the hon. Gentleman said, certain transfers of school land between governing bodies, trustees, foundations and local authorities provided for under the School Standards and Framework Act 1998. Stamp duty on documents relating to land transactions was replaced by stamp duty land tax on 1 December 2003, so the stamp duty relief is obsolete because there are no remaining transfers, to which stamp duty applies, under the School Standards and Framework Act.
The stamp duty land tax relief was rendered partly obsolete when provisions in the Education and Inspections Act 2006 amending the transfer provisions in the 1998 Act came into force on 25 May this year. Some, although not all, of the amended provisions in the 1998 Act will be covered automatically by the general relief. Under powers included in stamp duty land tax legislation, we have made an order to ensure that all such transactions, and others provided for in the Education and Inspections Act, will qualify. I hope that that provides the reassurance that the hon. Gentleman was seeking. The relief will be perpetuated under existing stamp duty land tax provisions in the Finance Act 2003.

Question put and agreed to.

Clause 78 ordered to stand part of the Bill.

Clauses 79 and 80 ordered to stand part of the Bill.

Clause 85

Search warrants

Question proposed, That the clause stand part of the Bill.

John Healey: I welcome you to the Chair this afternoon, Mr. Illsley, and Members back to the Committee.
We move on to a new section of the Bill, in which we deal with matters relating to the powers of Her Majesty’s Revenue and Customs and the penalties at its disposal. HMRC is responsible for criminal investigations throughout the United Kingdom where suspected offences relate to one of its functions—for example, a serious tax offence. Being of a United Kingdom nature, those investigations can involve more than one country of the UK. For example, evidence concerning an offence committed in England might be held at an address in Scotland or Wales. In those cases, it is important that evidence is obtained in a way that is acceptable to the court where the prosecution will take place and that it is clear which statutory provisions and safeguards apply.
Clause 85 ensures that a search warrant granted in England and Wales under section 8 of the Police and Criminal Evidence Act 1984—PACE—in connection with an HMRC investigation can, when appropriate, be executed in Scotland once suitably endorsed by a court in Scotland. Schedule 23 has similar provisions for warrants granted in Scotland to be executed in England. In a similar way, clause 86 applies some existing provisions that allow various powers of arrest or detention of suspects, and search powers on arrest, to be exercised in another country of the United Kingdom when appropriate.
I make it clear to the Committee that the clause does not provide HMRC with new powers, but allows existing provisions to be used appropriately. It will provide greater clarity regarding which provisions can be used and which safeguards apply. It should therefore benefit citizens, the courts and HMRC.

Rob Marris: Will my hon. Friend briefly explain the position in relation to Northern Ireland, given that clause 84 and the schedule cover Scotland and that clauses 84 and 85 are two-way traffic, as it were? I do not see a mention of Northern Ireland.

John Healey: I shall complete my points about Scotland and then return to Northern Ireland.
Clause 85, and the equivalent provision for Scotland, was subject at the outset to thorough consultation. Its approach has been supported by most respondents. Indeed, a senior judge in Scotland commented:
“it is sensible to apply clear rules for cross border criminal procedures as suggested.”
It came out in the consultation that a minority of respondents did not accept that HMRC should be dealing with criminal investigations. My hon. Friend the Member for Wolverhampton, South-West is right to look quizzical at that comment. It has been pointed out that HMRC has had to tackle some of the most serious organised criminal fraudsters, such as the fuels fraud in Northern Ireland that was conducted by paramilitaries and some of the most organised, difficult and complex international missing trader VAT frauds. Nevertheless, some argue that, as a tax agency, HMRC should not have criminal investigation powers and thus, in such circumstances, it should have to call on the police or the Serious Organised Crime Agency instead to deal with certain matters for it.
Quite honestly, the police and SOCA have their own priorities. They do not have the tax knowledge or the expertise needed to undertake the sort of investigations that HMRC carries out. Even if there were large-scale secondments to and from HMRC to allow that sort of operational arrangement to work better, I am sure that members of the Committee would accept that there would be extraordinary complexity and a loss of scale if investigations then became the responsibility of 53 different police forces. I made that point because such an argument has cropped up consistently, although it has been a minority view throughout the consultations. It is important that we appreciate the nature of the criminal activities with which HMRC is dealing.
During the consultation, some representative bodies also asked for greater information on the procedures followed when an investigation involves more than one country in the United Kingdom. In its published summary of responses, HMRC said that it would discuss it with the prosecuting authorities because clearly it is a matter for them, not HMRC. It said that it would do so with a view to publishing a guidance note. I confirm to the Committee that the independent Revenue and Customs Prosecution Office and the Crown Office in Scotland have now agreed to work together on a guidance note. That should now put in place the arrangements that we require for cross-border co-operation with Scotland.
The situation in Northern Ireland is different in that suitable provisions already exist. That is why such matters are not covered in the Bill. I hope that the clause will provide greater clarity in relation to criminal investigations, and that it will stand part of the Bill.

Mark Francois: Welcome back to the Chair, Mr. Illsley. Will you indulge me for a moment so that I may offer my apologies to you and to the other members of the Committee for the fact that, because of my new responsibilities, I shall not be here on Thursday?
In that connection may I thank my hon. Friend the Member for Fareham and the Chief Secretary for their kind remarks this morning. There has been reference in this Committee before to Stockholm syndrome, whereby over time hostages begin to feel sympathy for their captors and, in certain circumstances, even grow reluctant to be free. I am beginning to understand how that feels. I joined the shadow Treasury team in late 2004 and for two and a half years, I have enjoyed working on Treasury-related matters. This is my third Finance Bill and, believe it or not, I am going to miss it immensely. I wish my hon. Friends the best of luck in the battles that lie ahead and all members of the Committee all the best in their continuing deliberations on the Bill, including on Report and at Third Reading. Thank you for your kind indulgence, Mr. Illsley, and I shall now get on with it.
 Turning rapidly to the matter at hand, I have one point to make on search warrants as exercised under clause 85, which provides for a search warrant granted in England or Wales to be enforced in Scotland, as the Financial Secretary outlined. I gave the Financial Secretary brief private notice this morning of the question that I want to ask. Prior to the proposed introduction of PACE powers for search warrants, as envisaged in the Bill, the most commonly used powers in that respect have been those in sections 20C and 20CC of the Taxes Management Act 1970, which relate to search warrants, including the power to enter a premises to obtain documents. As I understand it, sections 20C and 20CC were supplemented in the Finance Act 2000 by an additional section 20BA, which was effectively inserted into the 1970 Act in order to facilitate production orders by which the Inland Revenue could compel suspects to produce documents that might relate to a case under investigation.
Part of schedule 22 of this Bill also relates to the operation of search warrants and part 2 of that schedule proposes the repeal of sections 20C and 20CC so that HMRC will rely on a combination of section 20BA and the Police and Criminal Evidence Act 1984 when searches need to be carried out, both in England and Scotland.
Under PACE, HMRC could use one of two procedural methods to apply for a warrant—section 8, which applies generally to search warrants, or schedule 1, which allows for more specialised warrants in certain circumstances, and for which a higher level of judicial approval is required. Given all that, my question to the Financial Secretary concerns the following: we have received representations from the accountancy profession to the effect that using the PACE powers, which would also now apply under clause 85, rather than the well-established sections 20C and 20CC, would be legally more complicated and might be open to challenge. The proposal replaces a piece of well tried legislation that has apparently worked well with something carried across from PACE that might not be as suitable for the task in hand, including in fighting organised fraud.
I would therefore like to press the Financial Secretary on the thinking behind the change, as the original power was well understood both by the courts and by professional advisers in the accountancy and legal professions. In other words, the rules of the game were well understood on all sides. Before we accept clause 85, which would allow the exercise of the revised powers across the border, is the Financial Secretary confident that the measure has been properly thought through?

Adam Afriyie: Thank you, Mr. Illsley, and welcome to the Chair.
I sense that a fairly major step has been undertaken with the introduction of clause 85. It extends the powers of HMRC so that, to a certain degree, they are like those of the police service. Will the Minister give examples of where such powers exist in other Departments or other areas of our state system? Are they available to social services, allowing staff to enter premises and arrest people? Are they available to the education service? Are they available to those who work in the benefit system?
It is a serious step and I wonder why there is no limitation on those powers—or, if there is a limitation, how it works. For example, might it not be a good idea to say that the powers of search or entry to premises or the power of arrest should be limited to serious organised crime rather than the day-to-day business of collecting tax from individuals?

John Healey: I congratulate the hon. Member for Rayleigh. I almost rose to my feet to say so this morning. Some members of the Committee might find his admission that he will miss Finance Bill Committees curious. We will certainly miss his presence on the Treasury Front Bench. None the less, we look forward to the hon. Member for South-West Hertfordshire occupying his position; indeed, I hope to be debating with him tomorrow and not having to wait until the Committee returns on Thursday. We know, with the hon. Member for South-West Hertfordshire, that we get two for the price of one, so I also congratulate Mrs. Gauke on her promotion.
I am grateful to the hon. Member for Rayleigh for the notice that he gave me of his question, but as he said, the matter had been raised before by one of the representative bodies. We have considered it carefully, but it is at odds with the majority of the respondents to the consultation and is therefore not consistent with the general view.
 We chose to follow the path of the Police and Criminal Evidence Act 1984, and we rehearsed some of our reasons in the Committee of the whole House. Many of the statutory powers inherited from Inland Revenue on the merger have not been updated to match the changing circumstances that faced by HMRC, the changing challenges that it has to deal with and the changing operations that it has to undertake. On the other hand, PACE is a tried and tested piece of legislation. It is widely respected and understood, it already applies to the majority of criminal investigations in England, Wales and Northern Ireland and it has been continuously updated since its introduction.
The former Lord Chief Justice of England and Wales, Lord Wolff, has said that PACE reflects Parliament’s intention as to what should be the balance between the necessary protection of the rights of the individual citizen and the right of the public as a whole that those who commit crimes should be convicted and then punished. The majority of respondents to the consultation supported the adoption of that approach. Applying PACE to all HMRC’s criminal investigations will ensure that all the safeguards enshrined in that legislation will be directly applied to HMRC’s investigations.
 That is my answer to the hon. Member for Windsor; we discussed the safeguards fully in the Committee of the whole House. I emphasise that clause 85 gives no new powers to HMRC. It makes more sensible arrangements, allowing those powers to be used when cases involve cross-border activity between Scotland and England.
I hope that I have reassured the Committee that the equivalent and appropriate powers and safeguards in the Taxes Management Act 1970 will be provided for by the adoption of the relevant provisions of PACE. I therefore hope that the Committee will allow the clause to stand part.

Question put and agreed to.

Clause 85 ordered to stand part of the Bill.

Clause 86

Cross-border exercise of powers

Question proposed, That the clause stand part of the Bill.

Mark Francois: I thank the Financial Secretary for his kind words and join him in enthusiastically congratulating both Mr. and Mrs. Gauke on their elevation, which is doubly deserved.
Clause 86 relates to the cross-border exercise of powers by HMRC. The explanatory notes state:
“UK wide criminal investigations can raise complex issues around jurisdiction and the correct procedures and powers to use when gathering evidence and apprehending suspects. This clause clarifies how evidence can be gathered and suspects can be apprehended using powers that are familiar and acceptable to the court where any proceedings are likely to follow.”
 In light of that, there is a question that I would like to raise with the Minister. In the case of an HMRC investigation that spans more than one of the home nations, would there be a code of practice as to which jurisdiction the investigation and potential legal proceedings would take place under? The Financial Secretary in response to the previous debate intimated that a guidance note is now being drafted by the relevant prosecuting authorities and I am sure that the Treasury will be liaising with them on that. I should like to press him on this a little further while I have the opportunity.
There are many English residents who have their tax affairs dealt with by HMRC offices in Scotland, such as the one in Cumbernauld. Conversely, many Scottish and Northern Irish residents have their tax affairs dealt with in England or Wales. Given that, what would happen in the case of an English taxpayer who is in dispute with HMRC and whose only connection with Scotland is via his tax office in Glasgow? If the dispute then turns into a criminal investigation, could the English taxpayer be arrested and prosecuted under Scottish law? Would he have to travel to Scotland, hire Scottish lawyers or advocates and be put on trial in Scotland even though he ordinarily resides in England? 
How does the Financial Secretary see all this working in practice? As he has already referred to a guidance note, which I think would be welcome under the circumstances, could he update the Committee on the progress of those negotiations and give us at least an indicative date, if not a hard one, for when that guidance note is likely to be published? I imagine that not least among the professions, including the legal profession, there would be a great deal of interest in what that guidance note has to say. I hope that the Financial Secretary can understand the spirit of what I am asking him and perhaps give us a little further detail of how this would operate in the real world.

Philip Dunne: To endorse some comments made by my hon. Friend, who is shortly to become my European Friend, does this power give HMRC the option to choose in which jurisdiction it wishes to pursue a case against the taxpayer? If so, that would seem to put HMRC in a stronger position in seeking redress against the taxpayer. It would seem appropriate that there should be some safeguards to ensure at least that such a decision is taken with the agreement of the taxpayer rather than against the taxpayer’s wishes.

John Healey: It is important in this discussion to remember that prosecutions and the arrangements for prosecutions are now the responsibility not of HMRC but of independent prosecutors. That is the importance and the relevance of the guidance that I mentioned that will be drawn up by the Revenue and Customs Prosecution Office and the Crown Office in Scotland. They will work together on that guidance note.
 Perhaps I can give an indication of how these matters are dealt with currently in practice, which I think members of the Committee might expect to see broadly reflected in the approach that will be taken in future. The Paymaster General set this out in a letter in August last year to the Chartered Institute of Taxation and it was reproduced in the consultation document. The practice is relevant in the sort of circumstances that concern the hon. Members for Rayleigh and for Ludlow.
In practice, the decision on where proceedings are to take place will usually be taken on the balance of convenience——that is, where the taxpayer and the majority of the witnesses reside. That is how these matters are generally conducted now. As I began by saying, these matters are now for the independent prosecutors to decide, not HMRC and certainly not Government Ministers or Treasury officials. I hope that that gives sufficient indication and some reassurance so that the Committee feel comfortable about allowing the clause to stand part of the Bill.

Question put and agreed to.

Clause 86 ordered to stand part of the Bill.
5 pm

Sitting suspended for a Division in the House.

On resuming—

Clause 87

Personal tax returns

Question proposed, That the clause stand part of the Bill.

Eric Illsley: With this, it will be convenient to discuss the following: Amendment No. 247, in clause 87, page 61, line 8, at end insert—
‘or within a reasonable time thereafter when an electronic return cannot be delivered by reason of the failure or non availability of an official computer system as defined in Regulation 189 of the Income Tax (Pay as You Earn) Regulations 2003’.
Amendment No. 245, in clause 87, page 61, line 8, at end insert—
‘(c) on or before 31st January for a non-electronic return, if submitted by a person who is registered blind.’
Amendment No. 246, in clause 87, page 61, line 16, at end insert—
‘(A1) This section shall not come into force until the Commissioners have conducted an independent review of the security and reliability of the HMRC electronic filing system’.
Clauses 88 to 90 stand part.
Government amendments Nos. 241 and 242.
Clause 91 stand part.
Given the number of clause stand part debates contained within the group, I intend to call the Minister first, to speak first to the group of amendments, and then allow the debate to continue from there, with the will of the Committee.

John Healey: We now move to a section of the Bill that examines and makes provisions for the filing dates and filing methods of personal tax returns. Clauses 87 to 91 introduce changes to the income tax self-assessment tax return filing dates. These changes flow from the report and review of HMRC’s online services that Lord Carter produced for the Government. It was back in 2005 that my right hon. Friend the Paymaster General asked him to advise on measures to increase further the use of HMRC’s key online services, to maximise the potential benefits that could be gained for the taxpayer, and also to ensure that sustained and efficient delivery of services resulted from that greater uptake.
 At Budget last year, we accepted Lord Carter’s recommendations, and clauses 87 to 95 establish the primary legislation that will enable those recommendations to be implemented over the coming years, including changes to the filing requirements for pay-as-you-earn, VAT and corporation tax, which will be introduced in phases from 2009.
Clauses 87 to 89 introduce differential tax return filing dates for tax returns that are required for the year 2007-08, and then in subsequent years. Tax returns issued by HMRC after 6 April 2008 will need to be filed by 31 October 2008 for returns submitted on paper, or 31 January 2009 for returns filed online. Clause 87 sets out the changes to the existing filing date rules for personal tax returns that are completed primarily by individuals, clause 88 sets out the changes needed to the filing date rules for tax returns completed by trustees, and clause 89 sets out the equivalent changes for partnership returns.
Lord Carter originally recommended shortening the self-assessment tax return filing periods both for paper and for online returns. Some hon. Members will remember the discussions that I had in the Finance Bill Committee last year with the hon. Member for Fareham about this matter. As I expressed at the time, I had some sympathy with his argument. Clearly, I had to explain then that we were not legislating for any changes in that Bill, but we are now.
 At the time, I explained that HMRC had published a partial regulatory impact assessment with recommendations for our adoption of those changes. I explained also that HMRC had published a partial regulatory impact assessment with recommendations for our adoption of those changes. Alongside Lord Carter’s report, we specifically invited views on the recommendations and the partial regulatory impact assessment.
Last year, we set 30 June—I think—as the deadline for responses and comments. I gave an undertaking to the Committee as well that we would take into account the views expressed in it and during the consultation process. In light of views expressed and received on the partial regulatory impact assessment, Lord Carter himself considered the further representations in the evidence from tax practitioners and revised his recommendations on self-assessment tax return filing dates. The Government listened to and accepted those revised recommendations in July last year.
Lord Carter’s report states also that HMRC should continue to consult practitioners on the detailed implementation of his proposals. I can confirm that that has happened and continues to do so. The spirit in which HMRC has worked with tax practitioners and their representative bodies has allowed us to take a better approach in the Bill. I hope the Committee accepts that. It was ably summed up by Paul Aplin, chairman of the tax faculty at the Institute of Chartered Accountants, when he acknowledged that HMRC was abiding by what he called the Carter principle, which is that
“nothing is launched until it’s been tested and proved fit for purpose.”
I would like to make clear also to the Committee that we are not introducing compulsory online filing for any income tax self-assessment returns. Lord Carter did not recommend that and it is not our policy to do so; I do not want the Committee be under any misapprehension over that.
The introduction of differential filing dates, however, will encourage the further growth of online filing by capable and competent individuals confident about using IT and, of course, by agents. It will do so by offering the incentive of a longer period in which to file an online return. Representations made consistently to Lord Carter identified that as a significant driver in increasing voluntary take-up. The option to file income tax self-assessment returns on paper remains for everyone, but it will, of course, require earlier filing by those who choose that option.
Clauses 87 to 89 preserve the minimum period of three months currently allowed for the completion and filing of a return when the notice requiring the return is issued by HMRC after 31 October. That is a feature of the current system and will ensure that the minimum three-month period for completion is always given, regardless of whether the tax return is filed on paper or online. The rule changes in clause 89 for partnership returns depend on whether the partnership consists of one or more individuals or companies.
For partnerships that consist of one or more individuals, the notice to file a partnership return will, as a result of those changes, specify filing dates no earlier than those available to individuals and trustees—31 October for paper returns and 31 January for online filing. For partnerships consisting of one or more companies, however, the notice to file a partnership return will specify dates no earlier than nine months for paper returns and 12 months for online filing after the end of the partnership’s period of account in any tax year.
Clause 90 makes a small number of consequential amendments to existing provisions resulting from the introduction of differential self-assessment tax return filing dates under clauses 87 to 89 to ensure that the periods during which a tax return can be amended subsequently by a taxpayer stay linked to the 31 January for all paper and online tax returns. No one will be disadvantaged by filing a tax return early.
This substantial group of amendments includes three tabled by the Opposition, on which I shall briefly give the Committee my views. Amendment No. 247 seeks to provide an open-ended alternative to the 31 January filing deadline for electronic returns in the event of a systems failure or the non-availability of HMRC’s online service during the peak filing time on 31 January.
I hope that the amendment is a probing one—no equivalent amendment has been tabled in relation to clauses 88 or 89—because it is unnecessary. As I have stressed, HMRC’s self-assessment systems have been strongly capacity tested in the past two years and are now based on what I regard to be, and what I hope that the Committee will accept is, a strong design and IT infrastructure. Carter encouraged us to give even greater attention to this issue than we were already giving it. The online self-assessment system performed very well in the 2006 online filing peak, and better in 2007. In the final 24 hours of the 2007 peak, 150,000 tax returns were filed—almost two a second. In total, more than 3 million were filed in that way in the last tax year.

Julia Goldsworthy: Many of the representative bodies have noted how admirably well the system coped in January 2007. However, the Chartered Institute of Taxation reported online filing failure rates of up to 10 per cent. Was the Minister about to give his assessment of the failure rates, especially during that busy period?

John Healey: I was not, principally because we are talking about the self-assessment online tax system and the capacity of the HMRC system to accept and process filings. In those final 24 hours, the system was accepting and processing about 6,000 an hour—almost two a second—which is a significant performance.
HMRC is clear and on the record regarding what will happen if there is an unforeseen breakdown in the service, and I am happy to confirm for the Committee, on the record, that no one will be penalised for the delivery of a late return in such circumstances. However, I should make it clear that HMRC already has the power, under section 118(2) of the Taxes Management Act 1970, to put that into practice. I hope that hon. Members will not press the amendment to a vote.

Philip Dunne: Will the Financial Secretary give way?

John Healey: On amendment No. 247?

Philip Dunne: On the point about the capacity of the Revenue computer.

John Healey: I was about to move on, but I shall give way.

Philip Dunne: What work has HMRC done to consider capacity? The Financial Secretary talked about the speed of processing in January when a total of 3 million returns were filed online. How confident is he that if the move encourages substantially greater numbers of taxpayers to file online, the computer systems and software within HMRC will be able to cope with a doubling, tripling or even quadrupling of capacity? The Government’s track record on the delivery of such IT programmes is not stellar.

John Healey: Partly encouraged and underlined by Carter, I am confident that we have been sure to test the capacity that will be required of the system in good time, and that we will move to reforms only after that has been proven. We have already tested successfully the capacity for what we forecast will be the peak flow in January 2008. We will begin testing for the capacity that we expect in 2009 13 months before that. The testing has been done in good time to allow us to have the confidence to move forward with the reforms. When that is set alongside the increasing track record of the system, it should give us confidence that the system will perform as expected. In the event that it does not, the amendment is unnecessary, because HMRC already has the powers to ensure that no one is penalised for that, and I have given the Committee the commitment that no one will be penalised in such circumstances.
Amendment No. 245 would extend the paper return filing deadline to 31 January for a person registered blind. I am not sure whether the hon. Member for Rayleigh is using it as a probing amendment, but I notice that he does not seek similar provision for people with other disabilities. At present, many of the small number of blind people who complete tax returns receive help from HMRC or from friends. That level of support will not change. I urge the Committee to bear in mind five things. First, there will still be nearly seven months available in which to file a tax return on paper. In the unlikely event that all the information needed is not readily available within that period, provisional figures can always be used.
Secondly, in the event of a serious difficulty, when a blind person cannot file on time, HMRC would sympathetically consider any reasonable excuse for late filing and not apply a penalty. Thirdly, many blind and partially sighted people are likely to find that the online services that HMRC provides make the task of filing returns easier, as on-screen forms are increasingly easier to interpret and to complete.
 Fourthly, HMRC is developing a new web portal as part of the improvements that the Carter review has encouraged us to make. Those will be in place in time for the filing date changes in 2008 and those will comply with the widely accepted industry standard of access, known as WC3AA, which removed significant barriers to accessing web documents. In this case, for example, a blind person will be able to use a screen reader. Those with a physical impairment that precludes use of a keyboard or mouse—who, incidentally, would not be covered by this amendment—would be able in the future to operate these services by voice commands. So online services are likely to be more accessible and easier for blind people to use.
To reassure the Committee fifthly and finally, I point out that HMRC is conducting further research to examine access and some of the barriers for disabled people to online services. So although I am always sympathetic to the arguments that have been advanced, the amendment is not necessary.
Amendment No. 246 would delay the introduction of differential filing dates for personal tax returns pending an independent review. That is not necessary either. I have explained why we can be confident about the security and reliability of the system, and we will move to the reforms only once we have tested and established those features.
I hope that I have covered the quite substantial territory of this group, which covers clauses 87 to 91 and Government and Opposition amendments. The two Government amendments add two minor consequential changes not picked up in clause 90 as drafted. It is important that we make those changes. I am grateful to the Chartered Institute of Taxation for pointing the relevant issues out to us. I am glad that we have been able to respond with the amendments.

Mark Francois: As the Financial Secretary says, this is a large group. As he has just spoken about the Opposition’s three amendments, I propose to speak to the amendments reasonably narrowly first and then make some slightly wider points on clause stand part. If that is acceptable procedurally, Mr. Illsley, that is what I shall do. In his usual thorough manner, the Financial Secretary has addressed some, but not all, of the points that I wanted to make. I hope that he will bear with me if, for safety’s sake, I go through all of them.
Amendment No. 247 is designed to build flexibility into the system in order to overcome situations in which HMRC’s IT system is unavailable to taxpayers. The proposed filing deadlines allow little flexibility and, as in the case of the Taxes Management Act 1970, potentially involve the imposition of strict penalties for missed deadlines. That means that were there to be a major IT failure, many millions of taxpayers might be unjustly penalised. The Financial Secretary appears to have given us a commitment on that, and I shall come back to it later.
A quick look at the Government’s management of similar projects shows that that is far from being a theoretical worry. For example, the online portal of HMRC’s tax credits computer has been shut since 2005. At the time, the Financial Times reported:
“When the system went live, it collapsed under the weight of business, contributing to the huge number of overpayments and the continuing row over how those should be paid back.”
That was in October 2005. Then, as we now know, there was an attempt at a major organised fraud against the tax credits system via the e-portal. The Exchequer was defrauded of millions of pounds until the fraud was detected and the portal had to be closed in order to prevent it from continuing.
An occurrence that was similar in some ways affected the PAYE computer this year. It was not able to cope with demand after what Accountancy Age reported as
“a series of crippling glitches to the system ...at one stage the system was down for an entire week.”
That picture is slightly different from the one that the Financial Secretary painted this afternoon, however artfully he put it across.

John Healey: Will the hon. Gentleman accept that, as the Committee has no doubt realised, these clauses concern the arrangements for filing self-assessment forms, not tax credits?

Mark Francois: I do indeed. However, I am simply giving examples of other Government IT programmes, including Treasury ones. The Financial Secretary is tempted to tell us that everything has been tested and is robust, so I am considering whether other Treasury-related IT systems have been robust. The record is far from reassuring.
A concern that there could be similar problems with the self-assessment system was shared by 75 per cent. of the nearly 1,000 accountants who responded to the “Working Together E-group” survey, which was organised by, among others, the Association of Tax Technicians, the Chartered Institute of Taxation, the Institute of Chartered Accountants of England and Wales, and the Association of Certified Chartered Accountants. That found strong support for the proposition that HMRC needs
“a fallback in the event of an HMRC system failure”.
Let me give a practical example. Andrew Sherry, a chartered accountant from Stourbridge in the west Midlands, sent me an e-mail in early May in which he reported:
“I have several times tried to log onto the Inland Revenue agents PAYE system over the last week only to get the message that there is a system error. Having spoken to the helpline I am told that this is because the system is unable to cope with the volume. The Government is pushing for us to file everything online and every year the system fails.”
Our amendment is designed to remedy concerns such as that. It would address the situation by extending the deadline in the event of a computer systems failure, so as to give the taxpayer a reasonable time in which to submit a return.
I should say, in response to the Financial Secretary’s very fair question, that our purpose in tabling this probing amendment is to highlight the issue and to seek assurance from him that taxpayers will not be unduly penalised if they make reasonable attempts to file online but are prevented from doing so by a computer or computer-related failure on the part of HMRC. Given that he could see what we were trying to do, and given his pretty categorical assurance that HMRC will not attempt to penalise taxpayers in the event of a clear failure by one of its IT systems, I am grateful for what he has said, and I am sure that the professions and taxpayers will be grateful for that reassurance, too.
That leads me on to amendment No. 246, on the security of the system. Our amendment is designed to ensure that there has been a full independent evaluation of both the security and the reliability of the IT system on which the electronic filing process is based, before the change of filing dates in 2008. The history of the Government’s recent IT systems highlights major concerns over whether they are capable of designing a system that is secure enough for personal details included on tax returns.
 Just today, the Public Accounts Committee published a report entitled “Delivering successful IT-enabled business change”. That could be a fair description of the change that HMRC is going through, following the merger in 2005. The PAC looked into the issue in some detail and was quite critical of the Government’s record on running major IT programmes. Among other things, the PAC reported:
“Lack of relevant experience, combined with a regular turnover of post-holders, adds unnecessary risk to the management of IT-enabled change.”
Interestingly, the PAC also said that there is a lack of internal discussion and learning from past mistakes, stating:
“The lessons from Gateway Reviews”—
that is, IT project reviews—
“are not shared consistently across departments”.
Given the vast amount of money that the taxpayer now spends via the Government on major IT programmes, it is rather concerning that the PAC seems to feel that where something has gone wrong in one Department, other Departments are not being allowed to share the lessons that have been learned from what in many cases is the waste of a large amount of taxpayers’ hard-earned money.
The recent history of problems with major IT systems includes the medical training application system, or MTAS, problems with the Child Support Agency computer system, CS2, and continuing tax credits IT failure, as well as major problems with the PAYE system. I do not need to try your patience, Mr. Illsley; all I ask of the Committee—

Stephen Hesford: Will the hon. Gentleman give way?

Mark Francois: Of course. I would not dream of trying the hon. Gentleman’s patience, either.

Stephen Hesford: Are there any problems with grammar schools?

Mark Francois: I am not aware of the IT systems that most grammar schools use, but I hope for their sake that they work better than the Government’s CS2 computer, which has been a disaster from start to finish.
I shall not reiterate all the background to the MTAS fiasco but, as the hon. Gentleman is clearly interested in the subject, I shall give him a little bit. We know from the Secretary of State for Health’s grudging apology what a complete farce the system was. However, the important point is that a Government system full of private information was so flawed as to allow virtually anyone access to junior doctors’ personal information, which is deeply worrying. “Channel 4 News” looked into how that was done—

Kevin Brennan: This is ridiculous.

Mark Francois: It was ridiculous of the Government to allow that to happen in the first place. “Channel 4 News” showed that it was possible to access the personal information of junior doctors through the server by altering a few digits of the URL code, or web address of pages on the site. How was it that the Government could design a computer system that was so insecure?
Unfortunately, MTAS is not the only Government IT system to suffer those sorts of failures. To come closer to home for the Financial Secretary’s benefit, I return to the tax credits computer and a point about security of information. The computer added to its woeful record in May, by sending out thousands of letters containing personal details to the wrong addresses. HMRC sent at least 8,000 letters containing bank account numbers of individual claimants. The Yorkshire Post quotes one victim of the error as saying:
“Someone could have walked into a bank, said they’d lost their card and used my details to get a new one.”
There have been major problems with the PAYE computer, in particular the accrual of penalties by up to 154,000 small businesses that filed their returns online in the normal way, as the Treasury has encouraged, only to find months later that they were to be stung for hundreds of pounds in fines due to an HMRC computer glitch. In essence, this appears to have occurred because after the information had been received electronically, it was, in many cases, lost in the system.
To HMRC’s credit, it has apologised for the mistake, admitting that when employers or their agents queried the penalties, internal investigations that it carried out discovered that the “overwhelming majority” were cases where a test submission had been successfully filed but not the full valid return. That was the experience of Joy Aymes, a director of Eldon Design, who wrote to me saying that her company had been wrongfully fined £900, at least in the first instance. She said:
“If a business waited 9 months to let a client know they had failed to make a payment and added extra penalties to the money owing surely they would be breaking the law”.
A similar experience was had by Mr. Desmond Hickey, who wrote a letter dated 2 April 2007 to my hon. Friend the Member for Chipping Barnet, the shadow Chief Secretary, which he entitled:
“The essence of failed government”.
He complained that he, too, had received demands out of the blue for £900. He concluded that HMRC’s attitude showed
“how ‘institutionally business hostile’...Inland Revenue is”.
Such cases underline the need for security and reliability in all HMRC’s systems. The examples from the real world paint a rather different picture from the rosy one that the Financial Secretary gave the Committee a few minutes ago.
Lord Carter’s report stated:
“We recommend that as part of their work to deliver robust, high-capacity services HMRC should build in more rigorous testing. Each of the services should be capacity tested at least a year before our recommendations are implemented, and if any tests are not successful the measures relating to that service should be deferred.”
One must ask what happened with regard to the PAYE computer.

Julia Goldsworthy: Does the hon. Gentleman agree that in addition to testing the systems once they are in place, we must do something else? As we saw with the tax credits computer system, part of the problem often stems from the fact that there is inexperience in the procurement process. Although companies deliver what is asked, perhaps the Government do not understand what they are asking for and then only find out later. Does he agree that there needs to be intense scrutiny at the procurement level to ensure that these inadvertent problems do not occur?

Mark Francois: I thank the hon. Lady for that pertinent intervention. I admit that this happened under Governments of a different colour, but this particular Government have a particular penchant for major IT programmes that go wrong. The Public Accounts Committee has looked into these for many years and has very often recommended that lessons must be learned from past mistakes. We have now had 10 years of a Labour Government, and every year the PAC produces more reports saying that more problems have occurred, more taxpayers’ money has been wasted and more confusion has resulted. One must wonder whether anyone on the Labour Benches is listening, because if they are, why do the problems continue to recur?
Page 115 of the 2006 Red Book said:
“Lord Carter recommends that HMRC should continue to invest in its online infrastructure and supporting systems to deliver robust, high capacity services, which should be rigorously tested.”
I believe that the Financial Secretary referred to a similar statement. Why is it that the Chartered Institute of Taxation continued to reflect those concerns a year later? It has stated:
“We feel that to introduce this legislation in 2007 without an adequate fallback position in the legislation, whilst there are still significant e-filing problems, is contrary to ‘Carter Principles.’”
Given all those concerns about reliability and, in particular, security, amendment No. 246 is designed to ensure that a thorough review of HMRC’s IT security is carried out before the move to advanced electronic filing dates in 2008.
Amendment No. 245 seeks to exempt those registered blind from the early-filing provisions of the clause. I accept from the outset that the Financial Secretary was attempting to deal sympathetically with the issue. I acknowledge that fact. The amendment would ensure that blind people were not disadvantaged by the Government’s proposal to encourage online filing. The Royal National Institute for the Blind contacted my office with its concerns. Helen Dearman, the RNIB’s campaigns director, pointed out in an e-mail on 1 June that for some blind people at least, submitting an online tax return is not a practical option. As she put it:
“For some blind and partially sighted people there is a choice; they are computer literate and have ‘access technology’ that allows them to access the internet so are able to choose between the two options available. For around 32 per cent. of blind and partially sighted people of working age, submitting an on-line tax return is just not an option. It seems unfair that some people will be denied the longer submission deadline purely because they are unable to use computer technology.”
The Chartered Institute of Taxation reflected those concerns in its 2007 Budget submission when it expressed under the heading, “Disabled Persons”, the following view:
“Finally, there are many people, e.g. those with mental health problems or physical problems such as blindness, who may not be capable of accessing computers. Accordingly, we believe that there should be strong protection for individuals—whether in business or not—to ensure that they are not penalised by their inability to file online.”
Given that point, I should be grateful if the Financial Secretary could tell the Committee what, if any, consultation with representatives of blind organisations he has conducted concerning electronic filing, and whether he will continue to consult them as the programme rolls out. I should also be grateful if he could assure us that the online system is compatible with common access technology that blind people use, such as audio technology. He referred to it in fairness, but will he assure us that it will be built into any subsequent upgrades?
Will all guidance notes be sent in formats such as large print, audio or Braille for those that need them? I should expect the Treasury to do so, but I should be grateful if the Financial Secretary could confirm that point. Finally, will he sympathetically consider cases in which technological failure means that a blind taxpayer does not have access to the online system? I take it that that point is covered by his assurance regarding the previous amendment. Those are my cases for the three amendments that we have tabled.
I turn to my clause stand part remarks. Clause 87 essentially amends the dates for the filing of paper personal tax returns. It introduces a new regime, which means that from the tax year 2007-08 onwards, a taxpayer will have to file their return on 31 October 2008 rather than on 31 January 2009 the following year, unless they choose to file their return electronically. As the changes will have a substantive effect on all 8.8 million self-assessment taxpayers in the country, I shall detail some general concerns about bringing forward the deadlines and some additional concerns about electronic filing and the way in which it may operate in practice, including importantly, its likely impact on staff at HMRC.
By bringing forward the filing dates for a paper return, the Government seek to fulfil the aspiration of Lord Carter, who wrote in his report, published in March 2006, that
“we have set an ambitious, but we think realistic, timetable for further measures to increase the use of online services, to promote earlier filing and to provide taxpayers with certainty sooner.”
He made an additional recommendation, which has not been mentioned so far. He recommended that by 2012, HMRC should
“aim for universal electronic delivery of individuals’ tax returns from IT literate groups”.
Measures to encourage electronic filing of tax returns have been introduced before, notably to encourage businesses to file their PAYE returns online, and I have already outlined the weaknesses in that. In that case, the Government decided on a carrot rather than a stick, and promised to pay each company a £250 incentive for online filing.
In the case before us, however, the Government have decided to wield the stick by bringing forward the tax deadline for people who continue to file by paper. The Government’s original intentions were set out in the 2006 Budget, in which 31 August was proposed as the date for paper returns. The Sunday Times referred graphically to what happened next:
“Within an hour of Brown sitting down, accountant's e-mails were beginning to wing their ways across the ether, using phrases such as ‘bombshell’, ‘draconian’, ‘devastating’ ‘broken trust’ and ‘all talk, no action’. And this from a budget that was rated one of Brown's duller efforts.”
That being the case, we welcome, as an improvement, the Government’s new proposed date for paper returns of 31 October, as opposed to the earlier proposal of the 31 August. In saying that, I am delighted to have my hon. Friend the Member for Fareham sitting next to me, because, one year ago, he engaged the Government in some detail on that matter, as the Financial Secretary acknowledged. I am pleased that my hon. Friend is here to see that, on this matter at least, the Government seem to have taken some notice and moved back the deadline accordingly. We will count that as a feather in his cap, rather than in mine.
I have some questions for the Financial Secretary about the likely cost to taxpayers of those measures, including those highlighted in the Government’s associated regulatory impact assessment. I have noticed that RIAs are often a very useful source of detailed information about Government proposals and, to be fair, some of the Treasury ones are particularly detailed. Perhaps Treasury officials could have a word with the Foreign Office and we can have an RIA on the new European treaty, which I very much hope that the Chancellor would read.
I shall turn to the cost in both money and time to those who do not have internet access. The RIA that accompanied the Carter report estimated that 1 million taxpayers could be affected by electronic filing at an estimated total cost of about £10 million. The estimated additional costs to individual taxpayers varied from zero for those who use a tax agent and so, in a sense, are paying for a service anyway, to £100 for those who do not use a tax agent and have no internet access, which they would then have to find. The RIA continues:
“Those without easy access will need to obtain it, but there are various ways of doing that and HMRC will be working with taxpayers to ensure that a range of options are available, and that those options are as cost-effective as possible.”
How will HMRC alleviate the additional cost to taxpayers and, specifically, how will it seek to make electronic filing easier in line with the commitment given in the RIA?
In an answer to my parliamentary questions on 12 January and 26 April, the Economic Secretary admitted that currently nearly 1.5 million people are penalised to the total of some £40 million for the late return of their tax returns to HMRC. Will the Financial Secretary reassure the Committee that HMRC believes that the changes that he proposes to the filing dates will not lead to a greater number of taxpayers being fined for the late delivery of their tax returns? I appreciate that he is not personally responsible for every taxpayer sending back their return, but does the Treasury believe that, as a result of these changes, the number of people filing late and being fined will go up, down or remain roughly the same? In addition, I would be grateful if he could reassure the Committee that there are no plans to change the proposed date by which tax underpayments are due. I note that there is no provision in the Bill to change the due date of 31 January for all tax underpayments, but I would be grateful if he could put that reassurance on the record.
Furthermore, I have a number of practical concerns about electronic filing, on which I would also welcome the Financial Secretary’s reassurance. First, if we are to encourage taxpayers to file online, it must be possible for all taxpayers to submit all their relevant information. For that to happen, the software must be provided and be capable of taking in all of the information currently submitted on a paper return. Of the accountants who responded to the “Working Together E-group” survey, to which I referred earlier, only 18 per cent. said that they rely on the current free software provided by HMRC with the remainder buying in third-party specialist software.
Currently, taxpayers with income that they are required to declare, such as foreign or trust income, will have to pay a third party to buy the software in order to submit their returns. That was confirmed to me in a further parliamentary answer from the Paymaster General on 7 February 2007 in which she underlined the fact that some taxpayers will need to purchase their own software, which is a disincentive to filing online as the Government would wish. She put it like this:
“Self assessment tax returns can be filed online using either HM Revenue and Customs (HMRC) full SA online service or proprietary software produced by commercial software vendors. Most proprietary software purchased to facilitate online filing of self assessment tax returns is bought by tax agents and is typically part of a broader package embodying accountancy and client management facilities. As such, no estimate of these costs has been made.
Most individual taxpayers can file their self assessment tax returns online using HMRC’s free online service which covers most circumstances. Other individual taxpayers filed using proprietary software, the cost of which varies.
Partners can also file their own tax returns using HMRC’s free online service. But both the partnership and trust return can only be filed using proprietary software.”—[Official Report, 7 February 1007; Vol. 456, c. 1040W.]
The Law Society further emphasised this concern. It said:
“It is wrong to force them”—
taxpayers—
“over to a system which they can not use without involving them in extra annual expenditure for commercial software; that might be for the purpose of making just one single entry on a supplementary page that HMRC do not provide”.
Also, with regard to being able to submit all the taxpayer’s information electronically the Law Society has a particular concern about the so-called “white space notes”. Those are the panels on the form, Mr. Illsley, where you are encouraged to include additional information if you think it relevant. The Law Society fears that these panels are not big enough on the electronic versions to fully explain some individuals’ affairs. Could the Financial Secretary reassure us that both additional documents and white space notes will be usable and form part of the submitted returns that can be accessed promptly without additional cost?
6 pm
Finally, there is the ability of HMRC to cope with major increases in electronic timing, which will be partly determined by the commitment of HMRC staff to the new process. However, recent survey data now casts doubt on whether that will happen as effectively as Ministers might like to think. An article in Accountancy Age of 17 May this year entitled “Taxman in turmoil as morale plummets” stated:
“Staff morale at HMRC has plummeted in the eighteen months following the creation of the merged department in April 2005, according to a survey filed away obscurely on the department’s website.”
The article goes on to say:
“Tax offices recently went on strike on 31 January, when self-assessment returns are filed, and there is a constant threat of more industrial action.”
I have located the survey on the website and it transpires that of those 18,000 staff who responded, which is a considerable number to respond to a survey, 58 per cent. agreed with the statement that
“change is not well managed in the department”,
while only 29 per cent. agreed that
“the quality of service to customers was improving”.
That is potentially worrying if we are to see a major shift towards greater reliance on electronic filing. I am sure that the staff will do their best to cope with it, but it would appear from HMRC’s own internal staff survey that its staff are not exactly jumping for joy at the way in which the process is being conducted.
The point was further pursued in The Sunday Telegraph this weekend in an article entitled “Tax staff encouraged to go MAD as morale falls”. It reads:
“The survey also found that only a quarter of officials feel secure in their jobs and only 1 per cent. ‘strongly believe’ that the Department is running as well as it should. In response to this, HMRC is sending its staff on make a difference or ‘MAD’ courses, in which staff are apparently encouraged to ‘speak the future into existence’ through ‘learning interventions’ and ‘one to one feedback sessions’”.
Given the morale problems which now appear to be extant at HMRC, can the Financial Secretary “speak into existence” how HMRC intends to bring about the shift towards greater electronic filing by a work force which appears so unimpressed by the progress of the HMRC merger? We were promised that there would be Gershon savings, and electronic filings are obviously part of that. The Opposition have supported the process in principle, but it seems that on the ground it could be handled better than it has been to date.
To summarise, amendment No. 247 would provide some alleviation for taxpayers who are deemed to have filed late because of technical problems at HMRC rather than through any fault of their own. Amendment No. 245 calls for a review of IT security and reliability before the proposed changes are implemented. Amendment No. 246 asks for an extension of the filing deadline for those who are registered blind. As well as addressing those issues, with which, in fairness, the Financial Secretary dealt to some extent in his opening remarks, I would be grateful if he could say something about the wider issues that I have raised, including the availability of specialist software and the ability of HMRC to cope with the changes, given what appear to be some incidents of poor morale in the organisation.

Julia Goldsworthy: It is a pleasure to welcome you to the Chair this afternoon, Mr. Illsley, and it is always a pleasure to follow the hon. Gentleman. There is a little nostalgia in that, as I shall not be doing it for much longer. He was a feature of both my experiences of the Finance Bill, so things will not be the same without him. The question is: what changes will there be on the Government Benches by the time next year’s Finance Bill comes around?
It is important that we debate these clauses in Committee and that they are in primary legislation, because they involve significant changes to the way in which our tax system works. As we have heard, they will implement a great deal of Lord Carter of Coles’s recommendations about how electronic returns should be phased in. There is an issue about timing and how we will ensure that Departments, like businesses and everyone else, keep up to date with the fast-changing world. The key challenge is to ensure that the Government’s capacity runs in parallel to individuals’ ability to take on new technology. It might well be the case that new technologies are out there but not everyone can take them up. It is important that the proposals are sensitive to that.
The Financial Secretary mentioned that concerns have been raised by organisations about the capacity of HMRC in terms of online filing and the failure rate. He was right to point out that the 10 per cent. failure rate that I flagged up was for businesses, but I would appreciate his comments on the failure rate for the filing of self-assessment tax returns, although, as I said, the Chartered Institute of Taxation said that the online filing capacity was “admirably met” by HMRC in 2007. 
 On the Conservative amendments, I have a great deal of sympathy with the points made by the hon. Member for Rayleigh, and it is clear what the amendments seek to achieve. It is important for the public to have confidence in the security of the systems that they use. We have seen examples not only from Government but from national banks of how easy it can be for confidential information to be compromised. It is important that the Government and other organisations pay serious attention to that. When they are going through the process of procurement every effort should be made to ensure that systems are not created that can be easily compromised. On that basis, I have a great deal of sympathy with the amendments.
In relation to the amendments on the non-electronic return for submissions by a registered blind person, I sympathise with the hon. Gentleman’s narrow point. For some people, regardless of whether they are registered blind or not, there will be difficulties with making online submissions. Lots of other people with disabilities might find it difficult to register online, but it is worth making the point that for many of those people filing on-paper returns will be equally difficult and challenging. The key thing is to ensure that a variety of options are available to people who might experience difficulties in whatever manner, and that there is flexibility and sensitivity to those needs, whether they have a physical disability, a visual impairment or low literacy or numeracy skills, because such people might find challenges in submitting a return on paper or on a computer. The problem goes beyond the more traditional definitions of disability and covers areas such as skills.
I was reassured by the Financial Secretary’s comments about what happens in the event of HMRC failure. Will he expand on what would happen if a person who is submitting their tax return experiences failure at their end—either a power cut or a computer meltdown? Is there any opportunity for discretion in that area?
I have a couple more issues to raise. The first one was mentioned by the Institute of Chartered Accountants. It expressed concern about the certainty of the date when a return is received. Obviously, when deadlines are set, it is very important that they are met. There have been disputes in a number of cases about when the submission was received. The Institute of Chartered Accountants notes:
“From this year, HMRC no longer provides receipts when a tax return is delivered by hand or by post.”
Will those who file their returns online receive receipts so that they will be certain that their return has been received?
Finally, I echo the point made by the hon. Member for Rayleigh. What happens if the white space is not sufficient for people to make notes? Is there the opportunity for flexibility to expand that space? Is HMRC considering accepting an attachment so that a more full description can be sent with the formal submission?
As I said when I intervened on the hon. Gentleman, it is important that the Government move with the world. There are important lessons to be learned, particularly in terms of the procurement of very large IT projects. Although the Carter recommendations go a long way towards reassuring people that we are going to have a successful system, more could be done to explain categorically and formally exactly how some of those recommendations are met.

Philip Dunne: I share the general sense that the measure is appropriate and that we should be trying to encourage electronic forms of filing tax returns. I also share the concerns raised by my hon. Friend the Member for Rayleigh and the hon. Member for Falmouth and Camborne that the measures are being introduced with a degree of haste and potentially without sufficient testing, which dents confidence in the systems that are employed by HMRC, and that gives rise to genuine concerns.
My hon. Friend illustrated some of the problems experienced by one of his constituents. If you will indulge me, Mr. Illsley, I would like to give an example from one of my constituents. Mr. Andrew Chapman runs a small practice called STAFF Accounting in Church Stretton. He wrote a letter to the chairman of HMRC on 15 December last year. On that day, Mr. Chapman had spent several hours seeking to access the HMRC website to make some self-assessment returns. Mr Chapman told the chairman:
“The HMRC website for filing self-assessment tax returns on-line has once again been out of action for most of the afternoon. It is the busiest time of the year when agents are under the most pressure. I today telephoned the Online Helpdesk to find out when the website will again be available and was told that they didn’t know.”
The chairman replied to Mr. Chapman and indicated that from HMRC’s online service availability records, the self-assessment online service was apparently available “throughout the day” on 15 December. Quite clearly, something is at fault—either Mr. Chapman’s access to the website or HMRC’s records of its own website availability. One of the interesting things that emerged from Mr. Gray’s letter to Mr. Chapman, which gives an indication of the concerns that we have about HMRC’s procedure, is to do with how it can assess the veracity of the points being made by people issuing complaints.
Having failed to get through on the website, Mr. Chapman made a telephone call, as I have just described. In his letter back to Mr. Chapman, Mr. Gray says:
“Unfortunately we cannot find any trace of Mr Chapman’s call within our systems. This may have been because of a recording error at the time of the call, or that Mr Chapman called via a switchboard. Unfortunately, due to the complexities involved our recording systems cannot identify calls that enter our network via a switchboard as the switchboard masks the caller’s number.”
This may seem an insignificant and trivial point, but I am raising it because it illustrates the difficulty that the Opposition have in accepting the Financial Secretary’s statements that the procedures within HMRC are robust if HMRC cannot even identify from within its own computer systems the telephone calls that are coming in—it acknowledges that the calls are being received within its offices—because the technology is not up to it. The example illustrates our concerns about whether the technology will cope with the proposed electronic filing.
The hon. Member for Falmouth and Camborne raised a question about whether or not the officers in HMRC will have any discretion if errors are made. I appreciate that we are discussing the legislation rather than current practice, but currently errors that are made by HMRC are subject to individual appeal. They must be dealt with on a case-by-case basis and there is no discretion to deal with problems such as that experienced by Mr. Chapman. If such problems are going to become more widespread, as I fear they may, the Financial Secretary needs to address them with HMRC if the Bill is passed.
Another reason for making that observation about HMRC is that the National Audit Office has recently produced a report entitled “Helping Individuals Understand and Complete Their Tax Forms”. I am looking forward greatly to that report coming before the Public Accounts Committee, because my contributions to that Committee will be informed by this debate. However, the thrust of the report is that HMRC could be doing considerably more to orientate its services around the needs of the taxpayer, in particular online—the NAO focused on that. It said that the systems are causing individuals to pay the wrong amount of tax and calculated that
“unintentional errors by taxpayers in completing forms result in over £300 million in underpaid tax.”
It is perhaps not surprising that HMRC chooses not to calculate how much tax has been overpaid as a result of the complexity of its systems; it is just bad luck for the taxpayer unless they happen to spot the error.
Errors occur, whether online or offline. The opportunity for appealing the decisions is not automatic; it is complex. We are being urged, through these proposals, to encourage an acceleration of online filing without there being adequate safeguards in place to ensure that the systems can cope.

John Healey: As the hon. Gentleman said, we are indeed looking to encourage greater use of online filing for self-assessment. It will remain voluntary—I stress that. However, the way that we are designing the new service and the system set out in these clauses means that increasingly there will be a greater incentive to file online, which will help to reinforce the trend that we have seen—a trend that we welcome—in the past few years of more people choosing to file returns in that way. Online filing is welcome, because it brings benefits both to HMRC and to the taxpayer. It is more efficient, it is generally more secure, and it is a better way of doing such business.
The hon. Member for Falmouth and Camborne mentioned three specific issues beyond her general concern about the position of blind and disabled people in dealing with HMRC. I will come back to that general concern. First, on the question of receipts for filing online, all taxpayers who file online now receive an automatic confirmation by HMRC as soon as their return has been accepted by HMRC’s systems. That should now be dealing with the problems that she mentioned.
Secondly, the hon. Lady’s concern about the failures of self-assessment filing has been raised with us by the Chartered Institute of Taxation, largely on behalf of agents who have found that commercially purchased software seems not to be performing as well as promised or as well as it needs to. Post-Carter, HMRC is working on developing earlier and faster services for software developers and vendors, to ensure that their software is compatible and fully operational, and on providing validation rules in code format for such vendors. We are working with tax practitioners and vendors to try to identify consistent or common causes of failure so that we can deal with them.
Finally, the hon. Lady mentioned white space, which the hon. Member for Rayleigh is also concerned about. In November last year, HMRC developed and incorporated into the system the facility to take attachments—she asked about that and therefore perhaps was not aware of it. The system now provides for some 30,000 characters to be inserted in white space. That is a not insubstantial essay-length capacity, and I expect that in most cases it would be sufficient for a self-assessment tax form.
I said that we will miss the hon. Member for Rayleigh, and we will. I understand his desire to have a last hurrah. He treated us to a tour d’horizon that covered almost everything that he has dealt with in his two and a half years on the shadow Treasury Front Bench. Let me deal with his points about the clause.
I have explained that blind people will be treated sympathetically if there are good reasons for their not being able to file on time. To keep the matter in perspective, more than 9 million people file self-assessment returns. Last year, some 8,600 registered blind people filed self-assessment returns. Clearly, they represent an important but relatively small proportion of the self-assessment filing population.
The hon. Gentleman asked other specific questions. On consultation with groups that represent blind people, HMRC goes out of its way regularly to discuss issues across the range of its services and the operation of the tax system with groups that represent blind people and those with other disabilities. In large measure, that is why the redesigned web portal that I mentioned will be in place when the reforms come into being. It adopts WC3AA, which is the new industry standard for access. The standard has been developed in consultation with disability groups. I confirm that audio, large print and Braille copies of the guidance that HMRC produces are all available on demand.
Will late penalties increase revenue to the Treasury? No, we do not expect that. There is no reason why a self-assessment taxpayer should file later as a result of the changes and incur a penalty. The Red Book confirmed at the Budget that there is no expected increase to the Exchequer.
How will extra costs to the taxpayer be alleviated? Lord Carter has always been very clear on that. He identified benefits for taxpayers as well as HMRC in adopting online filing. It allows taxpayers to fulfil their legal obligations more accurately, more quickly and with greater certainty, and, clearly, there are benefits on the other side for HMRC as well. Any taxpayers to whom repayments are due are also likely to receive them more speedily and efficiently.
On payment dates, the due date for all payments remains 31 January and is unchanged by the arrangements. That applies for everyone who files on time before that date. Must individuals purchase software? HMRC already provides free software for nine out of 10 individuals, and the Government will introduce supplementary pages and improvements to that situation so that by the time of the reforms the free software will be available to 19 out of every 20 individuals who might be involved in self-assessment.
In summary, we have consulted widely and thoroughly on the changes. They have been refined in response to the further work of Lord Carter and to the consultation responses, and they are broadly supported across the piece. Let us keep a sense of perspective. For those filing on paper, the available time period will still be seven months, while for those filing online it will be 10 months. In Germany, the time period is five months, in Canada it is four months, and for individuals in France it is two months. Given that, I believe that we have a right and reasonable balance that will bring benefits to taxpayers who use the self-assessment system and will lead to an increase in online filing. It will also bring benefits to HMRC and its ability to manage the system effectively in the future.

Mark Francois: We have indeed had a good debate on the Government’s e-filing proposals. The Financial Secretary has answered many of my questions very directly, and I am grateful for that. The amendment groupings gave us quite a large pitch, so I decided to plough across most of it, but I thank him for meeting me on each bit of the pitch that I covered.
I shall therefore concentrate on the Opposition’s three amendments. On amendment No. 247, I am grateful for the Financial Secretary’s reassurance that no taxpayer will be penalised for a late return if the reason for late submission of the return is an IT systems failure at HMRC. He was clear about that principle and I appreciate that clarity.
On the amendment concerning IT security and reliability, our concerns are genuine. It is fair to remind the Financial Secretary that if we want people to file personal, confidential details online, it is critical that the system be secure, otherwise they will not have the confidence to use it. The security issue is important, and I hope that the Government will continue to bear that in mind as they take matters forward, as Lord Carter encouraged them to do.
The Financial Secretary dealt very appropriately with the amendment relating to blind people. He gave a commitment that HMRC would look sympathetically on any particularly hard cases involving blind people, and that it would continue to consult relevant organisations.

Question put and agreed to.

Clause 87 ordered to stand part of the Bill.

Clauses 88 and 89 ordered to stand part of the Bill.

Clause 90

Consequential amendments

Amendments made: No. 241, in clause 90, page 63, line 2, leave out subsection (1) and insert—
‘(1) In section 9(2) of TMA 1970 (returns to include self-assessment)—
(a) in paragraph (a) for “30th September” substitute “31st October”, and
(b) in paragraph (b) for “31st July” substitute “31st August”.’.
No. 242, in clause 90, page 63, line 11, at end insert—
‘(2A) In section 9A(6) of TMA 1970 (notice of enquiry: “the filing date”) for the words from “means” to the end substitute “means, in relation to a return, the last day for delivering it in accordance with section 8 or 8A.’.—[John Healey.]

Clause 90, as amended, ordered to stand part of the Bill.

Clause 91 ordered to stand part of the Bill.

Clause 92

Mandatory electronic filing of returns

Question proposed, That the clause stand part of the Bill.

John Healey: The previous five clauses all dealt with Lord Carter’s recommendations on self-assessment tax returns. The next clauses complete the package of legislative changes needed to implement his other recommendations. Together, they will mean that both business and HMRC will achieve the benefits that he envisaged.
 Clause 92 extends HMRC’s powers to require the use of electronic communications for the delivery of information to all taxes and duties for which it is responsible. In line with Lord Carter’s recommendations, the revised power will enable HMRC to make recommendations to require companies to file their company tax returns online, to require employers to file their in-year forms online and to require VAT traders to file their VAT returns online. Those requirements will be phased in from April 2009, in line with the revised timetable that we announced in the Budget. That timetable will give businesses the time that they need to prepare for the changes.
I am happy to put it on the record again that none of those requirements will be introduced until the services have been thoroughly tested and proven to operate effectively. That is in line with the principles set out by Carter. Both the Treasury and HMRC take that point very seriously. That is one reason why HMRC is investing £170 million in its online services over the coming years——to ensure that it will be able to perform to the level and capacity that we require. I commend the clause to the Committee.

Julia Goldsworthy: The Institute of Chartered Accountants has expressed concerns about this matter and sought reassurance that there are no plans for the compulsory electronic filing of income tax returns or the compulsory electronic payment of income tax liabilities. I think that the Minister has just given that reassurance, so I shall simply flag up a few issues.
We have talked about vulnerable groups filing self-assessment returns; there are also concerns about the ability of businesses to submit electronic tax returns. According to the regulatory impact assessment, Revenue and Customs estimates that up to 250,000 businesses will be required to file tax returns online. That is a significant number of businesses. I can think of many small businesses in my constituency that work on a subsistence basis. They might have to deal with the issues that I mentioned earlier, such as low skill levels, and might therefore have low computer literacy as well as any other kind of literacy. I seek reassurance from the Minister that the proposals will not be pushed forward at a rate that will preclude those businesses from being able to take part or that will cause them excessive difficulty or expense in co-operating.

Philip Dunne: I echo the hon. Lady’s sentiments. I did not anticipate that I would be able to bring my experience from the Public Accounts Committee so directly to bear in this Committee, but I alert hon. Members to another session that we had recently with the chairman of HMRC on filing VAT and company tax returns, because it is directly relevant to this clause. It became apparent from our discussions that the proportion of companies that file their tax returns online has increased from 2 per cent. in the year ending March 2006 to 7 per cent. in the year ending March 2007. HMRC’s target for company tax returns for March 2008 is 35 per cent. The chairman acknowledged that increasing performance regarding company tax returns in the next 12 months would be a tough act.
On VAT, the proportion of companies that filed their returns online in the year to March 2006 was 5 per cent. That performance improved to 9 per cent. for the year ending March 2007, but the target for the year ending March 2008 is 50 per cent. and the target for March 2010 is 100 per cent. HMRC’s performance in achieving its targets for online returns has, by its own admission, been modest at best.
The clause will give HMRC the ability to encourage companies to file online returns by law, but I add my voice to that of the hon. Member for Falmouth and Camborne to urge the Financial Secretary not to take advantage of the mandatory powers introduced by the Bill until such time as HMRC can cope with returns.

John Healey: I have made it clear, including in my opening remarks, that we will move to introduce the requirements only when the systems necessary for handling them have been properly tested. I say again to the hon. Member for Falmouth and Camborne that the measures will be phased in from April 2009. That should give businesses time to prepare. I would welcome it if she wishes to work with HMRC to ensure that smaller businesses and others in her constituency are fully aware of the measures.

Question put and agreed to.

Clause 92 ordered to stand part of the Bill.

Clause 93 ordered to stand part of the Bill.

Clause 94

Payment by cheque

Question proposed, That the clause stand part of the Bill.

Mark Francois: The clause essentially gives commissioners of HMRC the power to produce orders so that when payments are made by cheque, the payment is
“treated as made when the cheque clears”
rather than when it is received, as at present. The measure replaces the current position under section 70A of the Taxes Management Act 1970.
We appreciate what the Government are trying to achieve, but it raises potential problems. For instance, what happens when HMRC receives and subsequently loses a cheque? What happens when it receives a cheque but then experiences a delay in clearing it? I have asked Ministers whether they have performance indicators for the receipt of post from taxpayers. I received an answer from the Paymaster General on 5 March that probably bears repetition. She stated:
 “HMRC does not record performance indicators for the receipt, opening or acknowledgement of taxpayers correspondence...Through a sampling exercise, HMRC determines and records the percentage of correspondence answered correctly and completely at 15 and 40 working days after receipt of the correspondence in the Department. Validated results are only available annually.”—[Official Report, 5 March 2007; Vol. 457, c. 1676W.]
Will the Financial Secretary tell us the latest annual results? I ask that question in the context of an article in The Daily Telegraph on 8 May that was headlined, “Tax offices ‘have 1.5m mail backlog’”. It said that
“according to the Public and Commercial Services Union”,
the reorganisation currently under way within HMRC, which was referred to earlier, has left
“some store rooms...‘packed with mail’”.
In the same article, Blair Gibbs, who is campaigns director of the TaxPayers Alliance, was quoted as saying that:
“‘They tolerate no delay on our part, but thousands of taxpayers face anxiety and doubt while HMRC routinely takes weeks and sometimes months to reply to their letters and settle cases...Ultimately, this backlog is a product of our hugely complex tax system and a slow, bureaucratic culture in central government.’”
Will the Financial Secretary give us an assurance that no taxpayer will be penalised as a result of HMRC losing cheques or failing to present them for payment in a timely manner?

John Healey: The hon. Gentleman’s questions about cheque handling are not specific to the clause. No doubt he will hand his file of correspondence with the Paymaster General and his cuttings and press releases from the TaxPayers Alliance to his hon. Friend the Member for South-West Hertfordshire. The clause is designed to remove the cash-flow advantage to businesses that pay by cheque. I think that hon. Members appreciate that it is a modest, useful, supporting measure in the drive to encourage more taxpayers to file online. There is a wide range of acceptable payment methods, including BACS, CHAPS, bank giro and direct debit, many of which are cheaper, more efficient and easier than cheques and therefore save money for the taxpayers who use them. I hope that the provision will be a useful additional measure that enhances our ability fully to put into effect Lord Carter’s recommendations.

Question put and agreed to.

Clause 94 ordered to stand part of the Bill.

Clauses 95 and 96 ordered to stand part of the Bill.

Schedule 24

Penalties for errors

John Healey: I beg to move amendment No. 215, in schedule 24, page 260, line 33, leave out ‘HMRC think that’.

Eric Illsley: With this it will be convenient to discuss the following: Amendment No. 2, in schedule 24, page 260, line 33, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendment No. 216
Amendment No. 3, in schedule 24, page 262, line 18, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 217 and 218
Amendment No. 4, in schedule 24, page 262, line 41, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendment No. 219
Amendment No. 5, in schedule 24, page 265, line 22, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 220 and 221
Amendment No. 6, in schedule 24, page 265, line 26, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 222 and 223
Amendment No. 7, in schedule 24, page 265, line 30, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 224 and 225
Amendment No. 8, in schedule 24, page 265, line 34, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 226 and 227
Amendment No. 9, in schedule 24, page 265, line 38, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendments Nos. 228 and 229
Amendment No. 10, in schedule 24, page 265, line 42, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendment No. 230
Amendment No. 11, in schedule 24, page 266, line 2, leave out ‘think it right’ and insert
‘have reasonable grounds for believing it to be necessary’.
Government amendment No. 231
Amendment No. 12, in schedule 24, page 267, line 10, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendment No. 232
Amendment No. 13, in schedule 24, page 267, line 19, leave out ‘think’ and insert
‘have reasonable grounds for believing’.
Government amendment No. 233
Amendment No. 14, in schedule 24, page 269, line 9, leave out ‘think’ and insert
‘have reasonable grounds for believing’.

John Healey: There is a great deal in this group and I have a great deal of briefing for it, but I think that I can boil it down to its essentials. Clause 96 and schedule 24 contain a couple of important features, because together they provide a single new penalty regime for incorrect returns for income tax, corporation tax, PAYE, national insurance contributions and VAT. They will replace the separate—and very different—regimes that we currently have for each of those elements.
The penalty will be determined by the amount of tax understated, the nature of the behaviour giving rise to the understatement, and the extent of disclosure by the taxpayer. There will be a right of appeal against all penalties. The penalties will be set as a percentage of the understated tax. For failing to take reasonable care, the penalty will be 30 per cent.; for deliberate action, 70 per cent., and for deliberate and concealed action, 100 per cent. Importantly, the legislation lays down substantial reductions for prompted or unprompted disclosure. In special circumstances, HMRC will have discretion to reduce the penalty further.
A different measure of penalty will apply where inaccuracy results in tax being declared late rather than not at all. In addition, a new concept of suspended penalties will be introduced, so that HMRC may suspend all or part of a penalty for careless inaccuracies. The significance of that is to prevent the penalties from becoming a barrier to people coming forward when things have gone wrong.
There will therefore also be substantial reductions for unprompted disclosure by taxpayers, including down to nil. Disclosure means telling HMRC about the inaccuracy, taking active steps to correct it and giving HMRC access to check the details. To encourage taxpayers to work with HMRC to establish the correct tax position, there are also reductions to penalties for prompted disclosure, when a disclosure is made in response to a challenge from HMRC. Setting out the penalty and reduction levels, and the approach, in this way in statute for the first time is a major step towards making the regime more visible, effective and transparent.
I come now to the Government amendments, which I pay tribute to the hon. Member for Falmouth and Camborne for prompting. We discussed the issue in Committee of the whole House and I undertook to consider the matter further and to return with my own amendments, which are set out on the amendment paper. She and others reflected a concern about the phrase “HMRC think”, which occurs in a number of places in schedule 24. The Government amendments remove that phrase without replacing it in each instance. Let us be clear. The meaning and effect of the schedule are not changed by the amendments, but they have helped to reassure certain representative bodies, and the CIOT made it clear that it would welcome such an amendment.
There is one place where we consider that the word “think” should be retained, which is paragraph 11(1), which states:
“If they think it right because of special circumstances, HMRC may reduce a penalty”.
The distinction is that this is a discretionary measure and therefore different from the other places where we are making the amendment. The word “think” remains appropriate in that place in the schedule.
There has been extensive consultation, as part of the wider HMRC powers and penalties review, on the provisions. They have met with broad approval, in principle and, largely, in detail, too. The legislative framework in the Bill is only the first stage of the work. Work will continue to develop the guidance required to underpin it, in consultation with interested groups. We will ensure that that is then widely published and communicated. In due course, people will look back on this aspect of the Finance Bill as a significant reform of our penalties regime.

Mark Francois: The background to the Government amendments to schedule 24 is the now somewhat infamous wording of “HMRC think”. Those words as included in the Bill would have given HMRC the power to penalise a taxpayer in cases in which it thought that they had done something wrong. Those highly controversial words were, in characteristic fashion, buried in the small print of the Budget and, despite a prior period of consultation on wider issues, took the accountancy profession somewhat by surprise when they were included in the Bill.
 John Whiting, the respected PricewaterhouseCoopers tax expert, said in Financial Director magazine on 5 April that everyone had objected to the wording and expected that changes would have been made to the Bill. He said:
“The worry is ‘HMRC think’ is far too loose and arbitrary.”
John Cullinane, the then president of the Chartered Institute of Taxation, followed that in a CIOT press release, dated 10 April and entitled, “Alice in Wonderland Tax Penalties”, which argued:
“When this was first suggested by HMRC, the CIOT objected, as did other bodies. On Budget day HMRC admitted that there was almost universal disquiet about the statutory formula ‘If HMRC think’...Despite objections to this subjective clause, it remains in the draft legislation. The CIOT recognises that HMRC have engaged in constructive consultation over many issues. We are doubly disappointed that in this instance they do not appear to be listening.”
The Institute of Chartered Accountants in England and Wales also raised serious concerns. In its Committee briefing for the Finance Bill, it says:
“Paragraph 1(1) includes the phrase ‘HMRC think.’ The Explanatory Notes to the Schedule suggest this is little more than the use of modem language. We disagree.”
The ICAEW went on to argue:
“‘HMRC thinks’ does not suggest that HMRC are using their best judgement or taking a reasonable approach. We believe this phrase will lead to confusion and court cases to determine its true meaning.”
For good measure, the London Society of Chartered Accountants, which is affiliated to ICAEW, simply said this about “HMRC think”:
“This is at best otiose and at worst adds an unnecessary ambiguity.”
It appears that Ministers picked up on the weight of professional opposition to their proposal and a climbdown began. In the debate on HMRC powers in Committee of the whole House, the Financial Secretary dropped a broad hint that some reversal would be forthcoming when he told the House:
“In recognition of the anxiety that has been expressed and in response to those representations that have been made, I intend to table an amendment in the Public Bill Committee to clause 96 and to schedule 24 on civil penalties.”
He did better than that; he tabled more than a dozen. As the Financial Secretary may recall, I welcomed his comments   at the time by saying in the next column:
“As the Minister mentioned it, may I say quickly that Conservative members welcome his admission that there has been concern on clause 96. We have received representations on the matter and we look forward to seeing his amendment in due course.” —[Official Report, 1 May 2007; Vol. 459, c. 1460-61.]
Now that we have the amendments before the Committee, in the same spirit, I welcome what the Minister is doing. Conservative Members think that he has done the right thing and that he has listened to the weight of professional opinion on the matter. Therefore, we support his amendments as they will improve the Bill.
As I understand it, there is one example in the schedule where the wording “HMRC think” will remain in the Bill. That is at paragraph 11(1), entitled “special reduction”, which will allow HMRC discretion in “special circumstances” to reduce the penalty but not to increase it. I think that the Minister said that that interpretation is correct and, if it is, will he briefly give some simple examples of what those sorts of special circumstances might be?
 Finally, before concluding my discussion of the amendments, it would clearly be desirable to prevent such a situation from arising again. It would have been better if the Government had not gone there in the first place, so, with that in mind, will the Minister say how the situation came about? Were the words inserted on the insistence of Ministers, on the advice of parliamentary draftsmen, or did someone just get out of bed the wrong side one morning? What actually happened and how can we prevent it from happening again?

Julia Goldsworthy: I will perhaps be more generous to the Minister than the hon. Member for Rayleigh because my view is that the explanatory notes were clear that there was never any intention to introduce a new spectrum of subjectivity to how penalties would be applied. However, genuine concerns were expressed by the various representative bodies that contacted the Minister about how the law would be interpreted. There was a real fear that we would see the introduction of a more subjective test to whether penalties would apply, rather than an objective one. I will not raise everything from the debate on the Floor of the House, which was not in relation to the schedule but to earlier clauses that also used the word “think”.
 Essentially, by withdrawing the phrase “HMRC think”, the Government’s amendments achieve the same result as my amendments, which try to introduce a more objective sense to the use of particular language. That is clearly an improvement and allows the representative bodies to welcome the rationalisation more broadly than they were initially able to.
In addition to the points made by the hon. Member for Rayleigh, I would appreciate the Minister clarifying the following matter. I notice from the Minister’s letter that the meaning and effect of the schedule will not be changed by the amendments. If the intention was, as I am assuming, to try and make the legislation more straightforward, what impact has the little exchange between representative organisations had on the drafting of future legislation? We know from the Financial Secretary’s letter to the Committee on 22 May that
“‘think’ is used in over 3,000 instances in other statutes, including in Finance Bills”.
Will there be a policy change from now on? Are we going to see HMRC officers, or anyone else, “thinking” about future Finance Bills and other legislation?

John Healey: For future drafting, we will use the formula of “HMRC think” when we think that it is appropriate. As the hon. Lady said, that formula is well established in legislation, in Finance Bills and more widely. Where appropriate, it seems sensible to use it. In this case, we took the view that it was clearer and more transparent to have “HMRC think” in the original drafting. We put it out to consultation on that basis and many were persuaded of our point of view, but some were not. There are still concerns out there, however, which is why we have responded with these amendments. As I explained, in our view, the practical effect of the clause and the schedule will be unaffected by the amendments. I hope that hon. Members feel that they have played an important part and are satisfied with the reframing of the Bill.
On specific examples of special circumstances, the Bill is designed not to reflect circumstances of which we are aware already, otherwise we would have framed the provisions in the clause and schedule in order to deal with that. In a sense, it is a safety valve should such unforeseen circumstances arise where a further reduction is required.
If I may ask your indulgence, Mr. Illsley, I must apologise and provide some clarification to the Committee about something that I mentioned earlier concerning clause 87 and the capacity of the white space on the self-assessment tax form. Having checked the capacity, I find that it is not about 30,000 characters, but 9,180. I apologise to the Committee for that misleading information earlier. I say simply that that figure is still sufficient to contain a short speech by the hon. Member for Rayleigh.

Rob Marris: I welcome the amendments, which do not change the meaning of the Bill. As the hon. Member for Falmouth and Camborne said, the Financial Secretary’s letter said that there are 3,000 instances elsewhere in legislation where that drafting is used. In respect of remarks that I made earlier, I note that the meaning and effect of various other parts of the Bill would not be affected if the word “but” was removed. If I am foolish enough to serve on another Finance Bill Committee, I do not want to get a letter saying that “but” starts 3,000 subsections elsewhere because we did not clean that up in this Bill.

Amendment agreed to.

Amendments made: No. 216, in schedule 24, page 262, line 18, leave out ‘HMRC think that’.
No. 217, in schedule 24, page 262, line 18, leave out ‘them,’ and insert ‘HMRC,’.—[John Healey.]

Eric Illsley: We now come to amendment No. 248. I call Theresa Villiers.

Mark Francois: I beg to move amendment No. 248, in schedule 24, page 262, line 19, leave out ‘30’ and insert ‘60’.
Interesting to finish my career shadowing the Treasury with a sex change. Paragraph 2 of schedule 24 is designed to give HMRC the power to penalise a taxpayer if they have
“failed to take reasonable steps to notify them, within the period of 30 days beginning with the date of the assessment, that it is an under-assessment.”
Our amendment is simply designed to increase the period that a taxpayer has to 60 days. The amendment is necessary because, in the words of the ICAEW,
“The 30 day time limit looks unreasonable, particularly given that the 30 days starts from the date that is on the assessment rather than the date it is received by the taxpayer. We think it would be more reasonable to give a 60 day period.”
The point about the time that it takes to receive the assessment after the 30-day clock has already started ticking seems valid, not least because the taxpayer could be on holiday when the assessment arrives. Similarly, any disruption to the postal service, say as a result of industrial action, could eat into a good part of the 30-day period. That seems pertinent in light of the stand-off between Royal Mail and the trade unions, which could lead to the first national postal strike in many years.
In addition, the assessment in the case of a complicated return might take some time to check, and the taxpayer might be reliant on their adviser to do it for them and to communicate the information to them. That can all take time. I would be grateful if the Minister could clarify whether the clause is intended to be used in all cases of HMRC errors that lead to an underassessment or, as I believe has been suggested to some members of the professions, it is likely to be used in practice only in cases of default assessments issued in the absence of a completed tax return. Subject to the answer to my question, we believe that it would be reasonable to extend the period that the taxpayer has to receive and check their assessment from 30 to 60 days. I commend the amendment to the Committee.

John Healey: It is indeed a provision that relates to the default responsibility of HMRC to raise an assessment when no return has been made by the taxpayer at all. In relation to holidays, the provisions of the clause will come into effect—because this is where the process starts—only in relation to a taxpayer who fails to make any return at all. To make it clear, any taxpayer who sends their return on time will not receive such assessments because they will have self-assessed and so the penalty will not apply.
Some coverage has suggested that somehow taxpayers will be penalised for HMRC errors. That is not the case. I accept that some confusion has arisen from the rubric for paragraph 2 of schedule 24, which was entitled “Error in HMRC assessment”. I am making steps to change that to a more appropriate and accurate “Underassessment by HMRC”. The taxpayer knows the facts or is in a position to find them out, and they should decide whether an HMRC assessment is too low. All they have to do within 30 days is to tell HMRC that an assessment might be too low. They can take longer to work it out, correct the figures or file a correct return. Extending the period in this way would be out of line with similar obligations in the Taxes Act 1988. I urge the hon. Gentleman not to press the amendment.

Mark Francois: As the Minister rightly admitted, there has been some confusion about this matter with regard to the rubric. I hope that we have performed some small service in tabling the amendment by getting that explanation on the record. I am grateful to the Minister for that commitment, and I hope that it helps to clarify the point. Before I go to the Foreign Office, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 218, in schedule 24, page 262, line 41, leave out ‘HMRC think that’.
No. 219, in schedule 24, page 265, line 22, leave out ‘HMRC think that’.
No. 220, in schedule 24, page 265, line 24, leave out ‘HMRC think’.
No. 221, in schedule 24, page 265, line 26, leave out ‘HMRC think that’.
No. 222, in schedule 24, page 265, line 28, leave out ‘HMRC think’.
No. 223, in schedule 24, page 265, line 30, leave out ‘HMRC think that’.
No. 224, in schedule 24, page 265, line 32, leave out ‘HMRC think’.
No. 225, in schedule 24, page 265, line 34, leave out ‘HMRC think that’.
No. 226, in schedule 24, page 265, line 36, leave out ‘HMRC think’.
No. 227, in schedule 24, page 265, line 38, leave out ‘HMRC think that’.
No. 228, in schedule 24, page 265, line 40, leave out ‘HMRC think’.
No. 229, in schedule 24, page 265, line 42, leave out ‘HMRC think that’.
No. 230, in schedule 24, page 265, line 44, leave out ‘HMRC think’.
No. 231, in schedule 24, page 267, line 10, leave out ‘HMRC think that’.
No. 232, in schedule 24, page 267, line 19, leave out ‘they think that’.
No. 233, in schedule 24, page 269, line 9, leave out ‘HMRC think’.—[John Healey.]

Schedule 24, as amended, agreed to.
 Further consideration adjourned.—[Kevin Brennan.]

Adjourned accordingly at three minutes past Seven o’clock till Thursday 7 June at Nine o’clock.